COMMISSIONER OF INCOME TAX WEST BENGAL I CALCUTTA Vs. ASSOCIATED ELECTRICAL INDUSTRIES INDIA PRIVATE LIMITED

JUDGEMENT

(1.) This appeal by special leave is directed against the judgment of the Calcutta High Court answering the following question of law against the Revenue on a reference made by the Income-tax Appellate Tribunal:- "Where on the facts and in the circumstances of the case the Tribunal was right in holding that the difference between Rs. 2,09,920.88 np. and the amount that had been allowed by the Appellate Assistant Commissioner was a business expenditure incurred by the assessee in the relevant previous year and in allowing the same as a deductible expenditure -

(2.) The assessee, who is the respondent before us, carries on business as Electrical Engineers and Contractors with its Head Office in Calcutta and branches in different parts of the country. The assessee put into effect a Pension and Life Assurance Plan for its European employees in about the year 1948. Pursuant to the Plan it took out policies with the Scottish Widows' Fund and Life Assurance Society in the name of those employees. Under the Plan rules were framed, and the assessee paid his part of the contribution to the premium in respect of the policies taken with the Society. The employees whose lives were insured also paid their portion of the premium and thereupon became Plan Members. The original rules under the Plan enabled the assessee to obtain receipt of the moneys assured in certain circumstances and the assessee had also a right to direct a particular mode of disposal of the funds of the Plan. The assessee claimed a deduction every year of the sums paid by it by way of its contribution to the premium in respect of the said policies. Originally, the amount so contributed by the assessee towards payment of the premium was allowed by the Income-tax Department as a deductible expense. For the first time, however, the Income-tax Officer disallowed the claim in respect of the assessment year 1956-57. On appeal by the assessee against the assessment, the Appellate Assistant Commissioner found that the assessee had treated its contribution to the premium as part of the salary of the respective employees on whose lives the policies had been taken and had also deducted tax at source from the salary, and the contributions made by the assessee constituted a revenue expenditure falling within the terms of Cl. (xv) of sub-s. (2) of S. 10 of the Indian Income Tax Act, 1922. The Appellate Assistant Commissioner, however, dismissed the appeal on the ground that the provisions of Cl. (c) of sub-s. (4) of S. 10 of the Act barred the allowance claimed by the assessee inasmuch as no effective arrangements had been made by the assessee to secure that tax would be deducted at source from the amounts paid finally to the employees by the Society in terms of the policies. The Income-tax Appellate Tribunal allowed in part the second appeal preferred by the assessee, holding that all the contributions made in the relevant year by the assessee to the premium on the life policies of the Plan Members were not allowable as deductions in the hands of the assessee, and what was allowable were the contributions made by the assessee to the policies of such employees who had actually been paid pensionary and retirement benefits by the Society.

(3.) After completing the assessment for the year 1956-57, the Income-tax Officer reopened the assessments of the assessee for the assessment years 1948-49 to 1955-56 under S. 34 of the Act and disallowed the deductions which had been allowed earlier. On appeal by the assessee against the several assessments, the Appellate Assistant Commissioner followed the approach adopted by the Appellate Tribunal in the appeal for the assessment year 1956-57, and allowed the deductions claimed in respect of payments made by the assessee on policies respecting which payments had been made by the Society to the employees in those years.